COMPLIANCE Q&A By Bill Showalter, Senior Consultant, Young & Associates, Inc. SUMMER 2022 Flood Insurance. Q: We are working on a loan for our borrowers to purchase a primary residence. I just pulled the flood determination and found that part of the property is in the flood zone. However, the residential structure is not in the flood zone, only an older storage shed. Do we need to place flood insurance on the storage shed? Or is there an exemption for detached structures in this case? A: Generally, any insurable building located in a special flood hazard area (zone A) that secures a bank’s loan must be covered by flood insurance. However, there is an exception for “Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence.” So, if this shed does not serve as a residence and is not used for a commercial purpose, it may be exempted from the mandatory flood insurance purchase requirement. FCRA. Q: We have a customer who is trying to refinance a loan she has with our bank. She first asked our bank to do the refi, so we pulled her credit report. Now she is shopping and asked us to share the credit report we pulled with another lender. I don’t know if we want to do that, but I need to know if that is even allowable under the regulation. A: The FCRA permits the bank to share the report with the applicant but not with the other lender. If the bank shares the information with another person, it becomes a credit reporting agency. And it likely does not want to be considered a consumer reporting agency because there are a lot of additional requirements and obligations it would have to meet. Most banks believe it is best to stay a user and a provider of information to the consumer reporting agencies. TILA. Q: We are updating the bank’s historical table in the early plan disclosure for our variable-rate home equity line of credit (HELOC). The bank’s HELOC product is set up as 10 years with interest-only payments, and the principal is due at maturity. The historical table always had the first 10 years completed with index, interest rate (APR), and payment, and the last five years showing the index and rate only. However, this year’s updated table shows only the most recent 10 years completed with the monthly payment. I didn’t see anything where the rule on this disclosure has changed. Shouldn’t the historical table have the first 10 years completed with the index, rate, and monthly payment and the last five with the index and rate only? A: Yes, the historical table must show a full 15-year history of both the index values (for a particular date each year) and annual percentage rates (APR) to show potential borrowers what would have happened in the past (as an indicator of what might happen in the future). In addition, the table should show any payments (based on an initial $10,000 advance) for whatever time period payments are to be made under the particular program – for the 10 years in this case, the first 10 years of the 15-year index/rate history. TISA. Q: I am reviewing a checking account advertisement that states “NO Monthly Service Charge.” The account being advertised requires that monthly statements are sent by e-mail and charges a $3.00 monthly service charge if they are not. I reviewed Regulation DD and it states that a monthly service charge is a fee that must be listed, and the bank lists the fee on the TISA disclosure. My question is whether the advertising claim of “no monthly service charge” is “misleading” under Regulation DD standards? Continued on page 14 The Community Banker 13
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